Things to Consider When Opening a Private Medical Practice
Purchasing, starting up or operating a private practice is appealing to many medical professionals because of the independence and financial security it can provide. But it’s also a major endeavor that brings with it a host of considerations from business management to operating expenses.
A variety of medical professionals such as physicians, therapists, dentists and veterinarians often consider owning a practice, but are unsure the best way to get started. Some decide to start a new practice from the ground up while others jump in when an opportunity arises to buy into a practice or take over from a retiring professional. No matter how you start your private practice, there are several things you should take into consideration in your new role as a small business owner.
Prepare For the Time Commitment
Be ready for the investment of time and money that goes into a private practice. Many choose to own a practice to be freed from restrictions placed by larger medical groups. This enables them to personally make decisions that will improve their services and relationships with patients.
Although independence is a rewarding choice, it comes with additional work such as dealing with billing and insurance companies, managing an office, and being aware of changes in health care legislation. With enough preparation time to build a trustworthy staff, these additional tasks shouldn’t affect your main focus of taking care of patients.
Once you’ve made the decision to open your own practice, start outlining your timeline to get things in order and people in place. Whether you’re finishing your residency or deciding to leave a medical group employer, you should give yourself a couple of months to prepare for a smooth transition. Tasks that will take the most time and effort in the planning stage include finding the best location for your practice, applying for a small business loan, compiling legal documents, purchasing equipment and supplies, hiring staff and setting up phones and utilities.
One of the most important decisions and one that may take the most time is selecting your new location. To be cost effective, consider using existing clinic space rather than building a new one. You could take over vacated space from a retired medical professional or in an established medical office. This also provides the added benefit of providing more foot traffic to your door.
You will want to find out if your location is viable and has growth potential. Do a demographic site analysis to determine if the location has good potential for clients who could use your professional services.
Choose Partners That Understand Business
While in school, medical students excel in their field of study and patient care, but are rarely taught best practices for business in their industry. If you want to own your own practice someday, you may require additional education about how to run it from a business standpoint. It’s not enough to simply rely on your motivational drive and medical skills.
It’s vital to have a team that can provide guidance from all sides of your business. To ensure that nothing is overlooked during your initial planning, a business advisor could make sure everything is in place by the time your practice opens. Other business partners to consider include a banker, certified public accountant, attorney, wealth advisor and estate planner. You can’t expect to know how to manage all parts of a business, so carefully choose industry-specific professionals that can guide you with their expertise.
For legal assistance, consider a health care attorney that can identify and apply for the correct type of medical business entity. They may also help with organization formation and governance, and obtaining a tax identification number and Medicare provider number. For money management, a certified public accountant can prepare the appropriate documents needed to apply for financing and manage payroll and operational expenses.
Since you’re a new business, it’s important to get the word out to the community about your private practice. A marketing consultant can spread the news through local media, social media and advertising. They can also create community events surrounding your practice such as a ribbon-cutting ceremony and get you involved with the local chamber of commerce. The more you grow your presence in the community, the more opportunities potential clients may hear about you.
Find Funding For Your Start-Up
Medical professionals, like many other small business owners, generally need a small business loan or other outside capital to cover the start-up costs.
Evaluate different bank lenders that specialize in lending to medical practices to receive the best guidance in your financing needs. Lenders that specialize in medical practices usually provide services for acquisitions and start-ups, debt consolidation, refinance, expansion, working capital and practice equity.
Whether you need to purchase equipment or acquire the practice itself, your relationship with a specialized lender can help streamline the process. Keep in mind that undercapitalization is the number one reason for business failure so be open with your lender to ensure you receive the proper funding.
You may wonder if a lender would approve a loan if you are finishing a residency or have student loan debt. In several cases, even if you have student debt, you could still qualify for a loan backed by the U.S. Small Business Administration. Don’t hesitate in talking with a lender as you may have more options than you realize.
Prepare a financial pro forma to be prepared when meeting a lender for the first time. This will help you determine how much you’ll need to borrow for expenses such as real estate, equipment, attorney and accountant fees, medical records software and supplies. It will also show your calculations of the expected dollar amount of your revenue and expenses that will occur before making a profit on your private practice.
You should also know what your expected operating expenses will be for the first year. Be ready with your last two years of tax statements and a personal financial statement to give to a lender so they fully understand your financial situation.
It may feel daunting when starting a private practice, but you’re not alone. You will receive the support you need in your business endeavor through enlisting the help of business professionals and financial resources.
The information contained herein is for informational purposes only and does not constitute tax, legal, or accounting advice. You are advised to seek appropriate professional advice regarding your specific facts and circumstances.
David Kirby is senior vice president and director of Practice Pathways, a professional finance division of Zions Bank that specializes in serving clients in the medical profession. For more information, visit www.practicepathways.com.
This article originally appeared in the Sept. 21, 2015 issue of the Enterprise – Utah’s Business Journal.